…Bill proposes N25bn for non-life, N15bn life, reinsurance N45bn
Stakeholders in the insurance sector have raised concerns about the proposed Nigeria Insurance Industry Reform Bill, 2024, which seeks to increase the country’s minimum capital requirement for insurance companies.
The reform bill sponsored by Mukhail Abiru, chairman, Senate committee on banking, insurance and other financial institutions, proposes N25 billion as the minimum capital base for non-life insurance, N15 billion for life assurance, and N45 billion for reinsurance business. The bill has scaled second reading at the Senate.
Section 15 of the bill stipulates that a person shall not carry on an insurance business in Nigeria unless the insurer has and maintains the minimum capital requirement.
In the recapitalisation exercise pushed by the National Insurance Commission (NAICOM), the commission had mandated life insurance firms to meet a minimum paid-up capital of N8 billion, up from N2 billion, while general insurance companies are expected to increase their paid-up capital to N10 billion, from the earlier N3 billion.
Composite insurance (life and non-life operators) were asked to recapitalise to the tune of N18 billion as against N5 billion while the reinsurance business was required to have a minimum capital of N20 billion, from N10 billion.
According to NAICOM enhanced capitalisation of the insurance industry would enable it underwrite high risk and retain capacity as a market.
Kunle Ahmed, chairman of the Nigerian Insurers Association (NIA), articulating the industry’s stance during a public hearing on the bill on Friday, said the Nigerian insurance sector was not large enough to support the proposed increases in capital requirement without significant adverse effects.
“Insurance is an international business, and we need to consider what is obtainable in other countries, even within Africa,” Ahmed stated.
He cited Morocco, with a capital requirement of $5 million for life and non-life businesses, while Kenya’s requirements are $3.8 million for life and $2.3 million for non-life. He said South Africa has the least capital requirements but has one of the biggest markets.
Ahmed said Nigeria’s current capital requirements were relatively competitive within Africa, but the market size in other countries far surpasses Nigeria’s. “South Africa’s market is approximately $50 billion per capita, Kenya’s is over $1 billion, while Nigeria’s non-life business is only $0.63 billion, and life business is $0.43 billion,” he explained.
“This means we have significant capital chasing limited transactions.”
Ahmed noted that capital alone does not determine the capacity of an organisation or company. “I agree that it determines your retention, but it’s not the single determinant of your capacity. What we risk is that we’re going to have insurance companies that are not deepening insurance business in Nigeria, but are just sitting down and investing the money that they have in other things. I believe that we should focus a lot more on deepening insurance in Nigeria”, he said.
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Ahmed proposed a more balanced approach, recommending a minimum capital requirement of N10 billion for non-life and N8 billion for life insurance, which would make Nigeria the most capitalised insurance market in Africa. “Our focus should be on deepening insurance in Nigeria,” he said.
Addressing other provisions in the bill, Ahmed raised concerns about the proposed contribution of one percent of net premiums to a fund for road accident victims. “This effectively uses the funds of insured individuals to support those who do not have insurance.
He suggested limiting this contribution to 0.5 percent and urged the implementation of measures to ensure all vehicles in Nigeria are insured.
“We have about 11 million cars in Nigeria or 13 million cars and about 3 million or 3.4 million cars insured. In other words, we are saying that the small people that are insured should take care of the larger number of people that are not insured. We suggest we should limit this to 0.5% We must fashion up a way of ensuring that all cars in Nigeria are insured”, he argued
Regarding the bill’s mandate for claims to be paid within 60 days, Ahmed acknowledged the need for prompt payments but pointed out the complexity of the claims process.
Ahmed criticised the severity of sanctions prescribed for infractions within the bill, describing them as disproportionate. He highlighted section 100, sub-section 5, which imposes a punishment five times the required contribution to the road accident victims fund. “Encouragement, not excessive punishment, is necessary for compliance,” he said.
Olusegun Omesehin, insurance commissioner, commended the bill, noting that the proposed increase in the minimum capital requirement was good, as the market currently depends on foreign insurance because of low capitalisation.
“The adequacy of capital is critical to the ability of insurers to underwrite high risk. It is our humble submission that in determining the adequacy or otherwise of the proposed amount, however, there is a need to take into consideration a few key elements and observe a few areas.
He, however, urged the Senate to factor in the foreign exchange, inflation and devaluation in stipulating capital requirements.
“It is also important to consider the overall impact of inflation and devaluation of the naira, which has significantly reduced and weakened the available capital for most insurers in the market and impacted the ability to retain a good portion of specialised risks like aviation, marine oil, engineering and construction risks.
“We, therefore, submit that the minimum capital requirement that is provided in the bill is laudable and should be retained”, he said.
Abiru, chairman of the committee, responding to the excessive sanctions raised by industry players, said it was only aimed at encouraging compliance.
He said increasing capital requirement is important especially as Nigeria targets $1 trillion economy by 2030. The chairman said the Senate will look into all objections raised.
